I continue to target a high-yield investment strategy, which I will summarize as "get paid early and often through yield" and "do not plan for share-price appreciation". A comprehensive description is in this series of Seeking Alpha articles. As a reminder, this strategy does NOT consider capital appreciation as a core part of your return; it is an income-oriented return strategy. A few readers have suggested that I provide an update with some possible actions and next steps, which is the genesis of this article.

Let's start with a few observations about the investment environment. The global financial markets remain uncertain and volatile; the irrational exuberance of the U.S. stock and bond markets seems to be based on the positive direction of domestic housing, marginally-improved employment, and a ballooning money supply. This seems to only somewhat counter-balance the expanding U.S. deficit, leveraged Fed balance sheet, European unemployment and economic stagnation, and lower Asian growth. Given the uncertain and uninspiring environment, my investment model is to continue to seek immediate income rather than hoping and waiting for share-price appreciation and dividend growth.

Therefore, the goal is to continue to seek high yield, but try to mitigate the risks of one's portfolio for a volatile ride over the next 5 - 7 years. The reason is not to profit from short-term trades, and realize on sell in May and go away, but to reallocate capital to provide opportunities for a higher return and/or lower portfolio risk when the market provides this opportunity. The time to buy is when the security prices are lower (which will generate a higher yield) - this summer may be the next opportunity, if the securities that I desire to buy and hold correct by around 10%. Let me also introduce a point of clarification. I am indifferent as to the direction of the overall markets and indicators, unless the momentum carries a targeted investment into my buying range. For example, if the Dow Jones Industrial Average declines by 25%, there is no direct impact on my portfolio, as I do not hold any Dow 30 positions. My focus is on specific high-yielding stocks.

I still want to be paid "early and often" through high-yield, so have moved down the capitalization "food chain", and have bought more small positions with higher yields. The bad news for this strategy is that on a relative basis, the dividend-growing, large-capitalization companies, have been doing well in the recent rally. Additionally, I have some high-yielding stocks - such as Atlantic Power (NYSE:AT) - that have reduced their dividends. That said, I continue to feel that the miniscule 2% - 3% yields of the large-caps do not adequately compensate me for the uncertainty, and have previously demonstrated in this SA article that dividend growth return will not catch up with high-yield (capital gains excluded).

The decision of what to sell is as important as what to buy. I have moved away from legislatively-dependent, financial engineering companies - such as Business Development Companies (aka BDCs) and Mortgage Real Estate Investment Trusts (aka mREITs). I have also divested securities in industries which are entirely dependent upon global economic recovery; an example is shipping, which is struggling with oversupply, while volumes are collapsing.

These are the asset classes and securities that I sold (and the change in my holdings are in the "Example" columns). These are not necessarily what you should partially or completely divest. Rather, these are ideas for you to consider:

Exit coal and anything else that is not "green" or is facing competitive/technological disruption

Fixed Income

Government of Canada and Canadian Banks

Reducing, but remains my largest asset class in order to offset the risk of the small and mid cap equity positions

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I still believe that there is a place for fixed income in my portfolio as a form of equity disaster-insurance; most of it is Government of Canada backed, but some is convertible debentures of junior gold and oil and gas companies - my reasoning is in this SA article. Despite this belief, I am reducing my holdings and shortening maturities, as interest rates have nowhere to go but up.

The dividend-growth mega-caps have an enormous shareholder base, advisor recommendations, and followings. I recognize that I am in the small minority which categorizes Johnson & Johnson (NYSE:JNJ), Pepsi (NYSE:PEP), Proctor & Gamble (NYSE:PG), Coca Cola (NYSE:KO), Wal-Mart (NYSE:WMT), and others, in the Sell category.

To review a contrasting perspective, David Fish, who maintains a Dividend Champion spreadsheet, has authored a number of excellent articles which identify the dividend-growth stock investment candidates and demonstrate their financial benefits - an example is here. Another great and prolific author in this topical area is Dividend Growth Investor - one example of his articles is here. To summarize, many securities on my Sell list are on their Buy list - this is not a function of being right or wrong; rather it is a choice of investment strategy and goals.

For clarity, I am not proposing that you sell your dividend-growth stocks if they are part of your strategy; they are just not part of mine. Fully-valued, low-yield, high P/E, companies, do not qualify for my portfolio, regardless of their SWAN (Sleep Well At Night) attributes, earnings-growth, profitability, market share, or whether they grow dividends. I am focusing my equity portfolio on immediate, high yields from mid and small-cap assets that you can touch - real estate, infrastructure, utilities, telcos, gold mining, O&G, and select holdings in financials and food. These are crowding-out other investment alternatives.

Quickly evaluate a company that lowers its dividend, and sell shares in accordance with the diminished return. Re-deploy the money to companies better meeting the evaluative criteria.

Frankly, I have been too slow to execute on this, and encourage you to appropriately adjust your portfolio holdings in a timely manner.

You may want to hold a rather large cash position to buy and add securities at the right price and yield. I have been reallocating my portfolio to hard assets (e.g., gold and real estate), preferred shares, convertible bonds, and Master Limited Partnerships (aka MLPs):

Securities to INVEST (Buy and/or Hold)

Security/Asset Class

Example

Reason: YIELD

Australia and New Zealand real estate, telcos, utilities, and pipelines

These are just two of many examples. Tax-deferred, high yield; correction/soft-landing predicted

Convertible preferred shares and debentures

Hecla (HL.PRB),

MolyCorp (MCP.PRA)

Mainly in resources; high yield with economic insurance potential

CASH

U.S. Dollars

Opportunistic - for buying on dips

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Developing and pursuing a strategy is a process of making choices. I recognize that some of the securities on the list to Sell are very popular with yield-oriented investors. For example, PNNT and CIM both have high yields, and have grown their distributions. Most BDCs and mREITs compound their risks though highly-leveraged business models, and are highly elastic to interest rate and market moves. I have chosen to reallocate this capital to pipelines and telcos, which seem like safer high-yield bets to me. I have assembled some select statistics in the following table to demonstrate some of the trade-offs of what I am selling and buying. An assumption of my high-yield strategy is to retain my capital (across the portfolio). These and other statistics suggest that BDCs and mREITs are higher risk investments than pipelines and telcos (although the higher risk may pay you in higher yields and yield growth):

BDC & mREIT vs. Pipeline & Telco (Source: Barchart.com)

Security (Ticker)

Strategy

Current Yield %

36 Month Beta

5-Year Return %

12-mo EPS change

PennantPark

Sell

10%

1.79

152.99%

-2,060

Chimera

Sell

11%

1.33

-55.67%

-100

Enbridge

Buy/Hold

7%

0.65

58.12%

-33.86

Windstream

Buy/Hold

12%

0.93

4.85%

0

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Most U.S. and Canadian securities seem to be very-richly priced (i.e., depressed yields), at this juncture, so except for adding small incremental positions on dips to my MLP holdings, I am sitting on most of my high-dividend holdings and building a larger cash position from the Sell category.

Although pessimistic over the next quarter or two, I remain optimistic about our long-term prospects. If there is a substantial dip this summer and autumn, I will use my cash position to add to my portfolio, as follows:

Securities from the Buy and Hold category - for example, mid and small-cap, U.S. MLPs, telcos, utilities, and infrastructure, will be primary investment augmentations and additions.

I will also re-examine a few of the securities that I have divested. From the Sell list, I believe that Canadian banks are fully valued, but would be pleased to re-enter positions at 10% lower prices (and respectively higher yields). Similarly, Dow 30 Enhanced CEF fulfilled a gap in my portfolio, as I hold none of these securities - I had sold my position as I believed that it was fully valued, but would be prepared to re-enter it at a discount to NAV (Net Asset Value) and at a lower price (read: higher yield). If you are interested in this and other Dow 30 funds, I suggest that you read this article by Douglas Albo.

Certain high-dividend-paying European utilities and telcos (but little else) may provide interesting opportunities at the right price - and given the sovereign risks, that price is probably at least 10% - 25% below the current levels.

There are many successful investors who pursue very-different strategies from this high-yield approach. This is simply an update on how I am continuing to pursue this strategy, and what actions I plan should there be a downturn over the summer. I encourage you to also assess what to buy and sell in your high-yield portfolio. Thanks for your interest and readership, and happy high-yield investing!